Bill Ackman is finding out what it’s like to be on the receiving end of an activist attack. The Pershing Square Capital Management founder’s $4 billion London-listed vehicle is incurring investor wrath over its depressed share price. The experience may teach Ackman a little sympathy for his targets.
Since listing Pershing Square Holdings, Ackman has had a torrid few years, with bets on Herbalife and Valeant going awry. The listed vehicle now accounts for the majority of his overall assets under management, which were $8 billion at the end of March. And, even though the listed fund’s net asset value – its holdings less debt – has risen slightly since it was launched in 2014, the discount at which it trades has widened to around 30%, meaning investors have lost over a quarter of their money.
Asset Value Investors, which owns 3% of PSH, has a solution straight out of the activist playbook. It wants the trust to buy back lots more of its shares. That’s why AVI was annoyed when PSH issued new 20-year debt, as a more geared, less flexible balance sheet makes big buybacks harder. The investor also thinks PSH’s board is too soft on Ackman.
Ackman’s investments have performed far better this year. But he can’t rest on his laurels. Investment companies sporting big discounts are fertile ground for hedge funds who buy stock on the cheap and sell when the discount narrows. The fact that PSH owns liquid stocks like Chipotle Mexican Grill, makes it a low-risk target.
Still, the Pershing Square boss has some defences. For one, he and his team own over a fifth of PSH’s shares. And PSH’s quirky governance makes it even tougher for an activist to carry the day. Half of its voting rights are tied up in a separate company, overseen by independent directors.
Ackman’s best tactic may be just to carry on. PSH’s net asset value has risen nearly 50% this year, as the shares of Chipotle and Burger King owner Restaurant Brands International have sizzled. That kind of performance should do much more to close the discount to NAV than share buybacks. Next time the bosses of one of his targets ask for more time, though, Ackman may be a little more tolerant.